The Inside Story

A recent study found that insider buying activity differs as a forecaster of future gains. Multiple purchases by several executives within a three-month period have signaled big gains to come.

So have purchases at small companies with limited analyst coverage. Buys that followed recent upside earnings surprises paid off nicely.

The biggest returns were found after insider buys of undervalued stocks (judging by price/earnings ratios) with strong share-price momentum over the past 260 days.

NOTE: Insider stock buys may be a better indicator than insider selling activity because the latter might be dictated by other concerns, such as the expiration of stock options or portfolio diversification plans.

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